16th Aug 2013 16:24
Middle East and North Africa
The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us the widest coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the kingdom's sixth largest bank by total assets. | ||||||
Half-year to | ||||||
30 Jun | 30 Jun | 31 Dec | ||||
2013 | 2012 | 2012 | ||||
US$m | US$m | US$m | ||||
Net interest income ..... | 746 | 705 | 765 | |||
Net fee income ............ | 311 | 302 | 293 | |||
Net trading income ...... | 203 | 216 | 174 | |||
Other income/(expense) | (7) | 14 | (39) | |||
Net operating income22 .................................. | 1,253 | 1,237 | 1,193 | |||
LICs55 .......................... | 47 | (135) | (151) | |||
Net operating income | 1,300 | 1,102 | 1,042 | |||
Total operating expenses .................................. | (616) | (537) | (629) | |||
Operating profit ....... | 684 | 565 | 413 | |||
Income from associates56 | 225 | 207 | 165 | |||
| ||||||
Profit before tax ....... | 909 | 772 | 578 | |||
Cost efficiency ratio .... | 49.2% | 43.4% | 52.7% | |||
RoRWA49 .................... | 2.9% | 2.6% | 1.8% | |||
Period-end staff numbers | 8,667 | 9,195 | 8,765 | |||
Increased revenue despiterepositioning initiatives and adifficult socio-political environment,particularly in Egypt. | ||||||
Improvement in credit quality andrepositioning of portfolios contributedto lower loan impairment charges. | ||||||
Best Cash Management House (Euromoney Award for Excellence, 2013) | Best Wealth Management Firm (Banker Middle EastIndustry Award) | |||||
For footnotes, see page 100. | ||||||
Economic background
Gulf Co-operation Council ('GCC') economies grew strongly during the first half of 2013, with oil prices of above US$100 per barrel allowing governments to continue with the fiscal stimulus programmes they have pursued since early 2011. Although oil output volumes were down year-on-year following weaker demand and increased supply from Libya and Iraq, revenues were sufficient at the prevailing price level to allow GCC governments to spend and save. Saudi Arabia, for example, added US$30bn to its reserves in the first five months of the year. While Saudi Arabia, Qatar and Oman remained the region's best performers, the United Arab Emirates' ('UAE') economy substantially improved in the first half of 2013, as Dubai in particular benefited from strong external demand and its safe haven status amid continued political turmoil elsewhere in the region. Fiscal policy in the UAE also turned more expansionary in the period, as did credit conditions. Outside the GCC growth was much weaker, particularly in Egypt, where political unrest restricted economic activity, widened the budget deficit and put severe pressure on the currency. The outlook for Egypt remains highly uncertain.
Review of performance
Our operations in the Middle East and North Africa reported a profit before tax of US$909m, an increase of 18% on a reported basis and 20% on a constant currency basis compared with the first half of 2012. On an underlying basis, pre-tax profits increased by 24%, mainly due to lower impairments in all global businesses, increased net interest income and higher income from our associate, The Saudi British Bank.
As part of our implementation of Global Standards, we are undertaking a comprehensive review of business policies and controls to further guard against money laundering and sanctions risks. We continue to invest heavily in compliance and risk management.
In Egypt, we continued to manage risk proactively in an uncertain political and economic environment. Surplus liquidity levels in Egyptian pounds, which arose following the introduction of foreign currency restrictions at the end of 2012, were managed by re-pricing deposits in the currency downwards and by reducing our portfolio of investments.
In RBWM, we continued to focus on the Wealth Management business and launched a new investment monitoring platform for customers and
Profit/(loss) before tax by country within global businesses
Retail Bankingand Wealth Management US$m |
| Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Total US$m | |||||
Half-year to 30 June 2013 | |||||||||||
Egypt ....................................................... | 27 | 34 | 72 | − | (16) | 117 | |||||
Qatar ........................................................ | 7 | 20 | 33 | − | − | 60 | |||||
United Arab Emirates ............................... | 97 | 146 | 119 | 1 | (26) | 337 | |||||
Other ........................................................ | 6 | 74 | 89 | − | 1 | 170 | |||||
MENA (excluding Saudi Arabia) ................ | 137 | 274 | 313 | 1 | (41) | 684 | |||||
Saudi Arabia .............................................. | 43 | 77 | 98 | 6 | 1 | 225 | |||||
180 | 351 | 411 | 7 | (40) | 909 | ||||||
Half-year to 30 June 2012 | |||||||||||
Egypt ....................................................... | 33 | 45 | 62 | − | (3) | 137 | |||||
Qatar ........................................................ | 5 | 18 | 42 | − | − | 65 | |||||
United Arab Emirates ............................... | 52 | 147 | 104 | − | (4) | 299 | |||||
Other ........................................................ | 14 | 62 | (18) | − | 1 | 59 | |||||
MENA (excluding Saudi Arabia) ................ | 104 | 272 | 190 | − | (6) | 560 | |||||
Saudi Arabia .............................................. | 36 | 69 | 96 | 4 | 7 | 212 | |||||
140 | 341 | 286 | 4 | 1 | 772 | ||||||
Half-year to 31 December 2012 | |||||||||||
Egypt ....................................................... | 34 | 26 | 95 | − | (2) | 153 | |||||
Qatar ........................................................ | 4 | 18 | 42 | − | − | 64 | |||||
United Arab Emirates ............................... | 91 | 88 | 37 | 1 | (52) | 165 | |||||
Other ........................................................ | (41) | 63 | 47 | − | (38) | 31 | |||||
MENA (excluding Saudi Arabia) ................ | 88 | 195 | 221 | 1 | (92) | 413 | |||||
Saudi Arabia .............................................. | 24 | 51 | 74 | 5 | 11 | 165 | |||||
112 | 246 | 295 | 6 | (81) | 578 | ||||||
a structured investment product linked to offshore mainland Chinese RMB in the UAE. We expanded our remittance services in the UAE to provide customers with real time cross-border wire transfer rates and developed our digital channels by extending the enhanced security measures for mobile banking that were launched in the UAE last year to the other RBWM businesses in the region.
In CMB, we continued to invest in our trade business and rolled out the Commodity Structured Trade Finance offering in the UAE, targeting commodity-related trade flows and strengthening our collaboration with GB&M. We expanded the RMB services offered to our customers in the region, while the Saudi British Bank increased its Receivables Finance offering.
In GB&M, our focus remained on capturing intra-Middle East and 'South-South' business flows while providing a complete suite of products across Global Markets, transaction banking and advisory services to our regional clients.
The following commentary is on a constant currency basis.
Net interest income rose by 9%, as average lending and deposit balances increased due to the merger in Oman in 2012, the acquisition of the onshore retail and commercial banking businesses from Lloyds Banking Group in the UAE ('Lloyds acquisition') and increases in average lending balances and spreads in Egypt.
Net fee income grew by 4% due to growth in fees from credit cards and consumer loans in Egypt and increases in GB&M. The higher income from GB&M was driven by institutional equities as a result of higher pricing and growth in volumes, a rise in advisory fees due to increased transactions, and growth in volumes and assets under custody in Securities Services and Credit and Lending in the UAE.
Net trading income decreased by 4% as a consequence of the sale of our 80.1% holding in our Private Equity business in December 2012, and a reduction in the debt securities portfolio and lower Foreign Exchange income in Egypt reflecting the foreign currency restrictions in place. This was partly offset by favourable CVAs relating to a small number of exposures in GB&M.
Losses from financial investments were US$18m compared with a gain of US$5m in the first half of 2012, driven by losses on the disposal of available-for-sale debt securities.
A net release of LICs of US$47m was experienced in the first half of 2013 compared witha charge of US$134m in the same period of 2012. GB&M recorded a net release of loan impairment charges, compared with a charge in the comparable period, reflecting the improvement in the financial position of certain customers. CMB also recorded a net release in loan impairment charges due to a limited number of specific customer recoveries, fewer individually assessed loan impairments and lower collective impairment charges reflecting an improvement in the credit portfolio. Lower loan impairments in RBWM were attributable to acombination of the repositioning of the book towards higher quality lending and improved property prices in the UAE.
Operating expenses increased by 17%, reflecting the merger in Oman and the Lloyds acquisition, as well as operational losses arising from changes in the interpretation of tax regulations. This was partially offset by benefits from our sustainable cost savings programme of over US$20m in the first half of 2013 as we reduced our employee numbers, mainly from management de-layering and re-engineering initiatives.
Share of profits from associates and joint ventures increased by 8%, mainly from The Saudi British Bank, driven by higher revenues due to growth in retail lending and deposits, together with the effective management of costs.
Profit/(loss) before tax and balance sheet data - Middle East and North Africa
Half-year to 30 June 2013 | |||||||||||||
Retail Bankingand WealthManagement US$m |
| Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination62 US$m | Total US$m | ||||||
Profit before tax | |||||||||||||
Net interest income .......... | 295 | 246 | 194 | − | 2 | 9 | 746 | ||||||
Net fee income/(expense) . | 88 | 137 | 88 | − | (2) | - | 311 | ||||||
Trading income/(expense) excluding net interestincome........................... ...................................... | 32 | 47 | 125 | − | - | - | 204 | ||||||
Net interest income on trading activities ............ | - | - | 9 | − | (1) | (9) | (1) | ||||||
Net trading income/(expense)57........ | 32 | 47 | 134 | − | (1) | (9) | 203 | ||||||
Net expense from financial instruments designated atfair value ....................... | − | − | − | − | (1) | − | (1) | ||||||
Gains less losses fromfinancial investments .... | - | - | (18) | − | - | - | (18) | ||||||
Dividend income ............... | - | - | 4 | − | - | - | 4 | ||||||
Other operating income .... | 12 | 2 | 8 | − | 49 | (63) | 8 | ||||||
Total operating income . | 427 | 432 | 410 | − | 47 | (63) | 1,253 | ||||||
Net insurance claims63 ....... | - | - | - | − | − | - | - | ||||||
Net operating income22 . | 427 | 432 | 410 | − | 47 | (63) | 1,253 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ............... | (14) | 16 | 44 | 1 | - | - | 47 | ||||||
Net operating income .... | 413 | 448 | 454 | 1 | 47 | (63) | 1,300 | ||||||
Operating expenses ........... | (276) | (174) | (141) | - | (88) | 63 | (616) | ||||||
Operating profit/(loss) .. | 137 | 274 | 313 | 1 | (41) | - | 684 | ||||||
Share of profit in associatesand joint ventures .......... | 43 | 77 | 98 | 6 | 1 | - | 225 | ||||||
Profit/(loss) before tax .. | 180 | 351 | 411 | 7 | (40) | - | 909 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...................... | 1.3 | 2.5 | 2.9 | - | (0.2) | 6.5 | |||||||
Cost efficiency ratio ......... | 64.6 | 40.3 | 34.4 | - | 187.2 | 49.2 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ............. | 6,018 | 13,048 | 8,868 | − | − | 27,934 | |||||||
Total assets ....................... | 6,742 | 14,995 | 41,041 | 55 | 3,319 | (2,860) | 63,292 | ||||||
Customer accounts ............ | 19,594 | 13,652 | 7,816 | 1 | 79 | 41,142 | |||||||
Profit/(loss) before tax and balance sheet data - Middle East and North Africa (continued)
Half-year to 30 June 2012 | |||||||||||||
Retail Bankingand WealthManagement US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination62 US$m | Total US$m | |||||||
Profit before tax | |||||||||||||
Net interest income ............. | 273 | 240 | 191 | − | 1 | − | 705 | ||||||
Net fee income/(expense) .... | 85 | 143 | 77 | 1 | (4) | − | 302 | ||||||
Trading income excludingnet interest income .......... | 35 | 48 | 122 | − | 1 | − | 206 | ||||||
Net interest income on trading activities .............. | − | − | 4 | − | 6 | − | 10 | ||||||
Net trading income57 ........... | 35 | 48 | 126 | − | 7 | − | 216 | ||||||
Net expense from financial instruments designated atfair value .......................... | − | − | − | − | (4) | − | (4) | ||||||
Gains less losses fromfinancial investments ....... | − | − | 5 | − | − | − | 5 | ||||||
Dividend income ................. | − | − | 3 | − | − | − | 3 | ||||||
Other operating income ...... | 2 | 4 | 5 | − | 51 | (52) | 10 | ||||||
Total operating income ....... | 395 | 435 | 407 | 1 | 51 | (52) | 1,237 | ||||||
Net insurance claims63 ......... | − | − | − | − | − | − | − | ||||||
Net operating income22 ....... | 395 | 435 | 407 | 1 | 51 | (52) | 1,237 | ||||||
Loan impairment charges and other credit risk provisions | (37) | (12) | (84) | (2) | − | − | (135) | ||||||
Net operating income/(expense) ......................... | 358 | 423 | 323 | (1) | 51 | (52) | 1,102 | ||||||
Operating income/(expense) | (249) | (151) | (134) | 1 | (56) | 52 | (537) | ||||||
Operating profit/(loss) ......... | 109 | 272 | 189 | − | (5) | − | 565 | ||||||
Share of profit in associatesand joint ventures ............ | 31 | 69 | 97 | 4 | 6 | − | 207 | ||||||
Profit before tax ................. | 140 | 341 | 286 | 4 | 1 | − | 772 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 1.1 | 2.7 | 2.3 | - | - | 6.1 | |||||||
Cost efficiency ratio ............ | 63.0 | 34.7 | 32.9 | (100.0) | 109.8 | 43.4 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 5,005 | 12,554 | 8,519 | 1 | 1,817 | 27,896 | |||||||
Total assets ......................... | 6,437 | 14,482 | 36,539 | 53 | 8,676 | (3,306) | 62,881 | ||||||
Customer accounts .............. | 18,468 | 11,127 | 6,555 | 14 | 2,865 | 39,029 | |||||||
Half-year to 31 December 2012 | |||||||||||||
Retail Banking and Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination62 US$m | Total US$m | |||||||
Profit/(loss) before tax | |||||||||||||
Net interest income ............. | 324 | 252 | 176 | 1 | 41 | (29) | 765 | ||||||
Net fee income/(expense) .... | 79 | 136 | 83 | - | (5) | - | 293 | ||||||
Trading income excluding net interest income .......... | 33 | 46 | 86 | - | 2 | - | 167 | ||||||
Net interest income/(expense)on trading activities ......... | - | 2 | 26 | - | (50) | 29 | 7 | ||||||
Net trading income/(expense)57 .......... | 33 | 48 | 112 | - | (48) | 29 | 174 | ||||||
Net expense from financial instruments designatedat fair value ..................... | - | - | - | - | (8) | - | (8) | ||||||
Gains less losses fromfinancial investments ....... | - | - | 4 | - | - | - | 4 | ||||||
Dividend income ................. | - | - | 2 | - | - | - | 2 | ||||||
Other operating income/ (expense) ......................... | (18) | 17 | 9 | 1 | (4) | (42) | (37) | ||||||
Total operating income/(expense) ......................... | 418 | 453 | 386 | 2 | (24) | (42) | 1,193 | ||||||
Net insurance claims63 ......... | - | - | - | - | - | - | - | ||||||
Net operating income/(expense)22 ...................... | 418 | 453 | 386 | 2 | (24) | (42) | 1,193 | ||||||
Loan impairment charges and other credit risk provisions . | (18) | (98) | (35) | - | - | - | (151) | ||||||
Net operating income/(expense) ......................... | 400 | 355 | 351 | 2 | (24) | (42) | 1,042 | ||||||
Operating expenses ............. | (312) | (160) | (130) | (1) | (68) | 42 | (629) | ||||||
Operating profit/(loss) ......... | 88 | 195 | 221 | 1 | (92) | - | 413 | ||||||
Share of profit in associatesand joint ventures ............ | 24 | 51 | 74 | 5 | 11 | - | 165 | ||||||
Profit/(loss) before tax ........ | 112 | 246 | 295 | 6 | (81) | - | 578 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 1.4 | 3.1 | 3.7 | 0.1 | (1.0) | 7.3 | |||||||
Cost efficiency ratio ............ | 74.6 | 35.3 | 33.7 | - | 283.3 | 52.7 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 5,828 | 13,559 | 8,699 | - | - | 28,086 | |||||||
Total assets ......................... | 6,562 | 15,651 | 36,582 | 50 | 6,840 | (3,080) | 62,605 | ||||||
Customer accounts .............. | 19,802 | 12,826 | 6,880 | 3 | 72 | 39,583 | |||||||
For footnotes, see page 100.
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